Fire and Emergency New Zealand (Fenz) said they were alerted to smoke coming from the Underwood substation, near Lornevile, at about 11.30am.
Crews from Invercargill and Wallacetown attended, as well as PowerNet staff.
A Fenz spokesman explained the difficulty in extinguishing a transformer fire was that it was filled with oil.
After the power was isolated crews ensured there was enough foam to extinguish the fire once they began to do so.
"Once you start, if you haven't got enough to get it right out, you run out of the foam and the fire takes off again."
The fire was extinguished by 12.35pm.
"It only took about 10 to 15 minutes to put it out once they started."
As the smoke from the oil fire was quite thick and black, Environment Southland was notified.
Power was out to nearby areas including Lorneville and Wallacetown, as well as the nearby freezing works, for a time.
A spokesperson for PowerNet said supply had been restored to most customers by 1pm and the cause of the outage was being investigated.
